Boots in installments: as “Footwear of Russia” develops the financial services sector

Boots in installments: as “Footwear of Russia” develops the financial services sector

In the new headquarters of the group of companies “Footwear of Russia”, managing networks Westfalika, “Pedestrian” and Emilia Estra, completely moved in mid-2014. A modern glass office complex hidden in the courtyard on one of the most notable streets of Novosibirsk. Most of the street Bogdan Khmelnitsky built low-rise houses with low Gables, Bay Windows and even turrets. Uncharacteristic of Soviet housing architecture appeared here in the 1940s, this neighborhood was built by German prisoners of war.

In his office, principal owner of “Footwear of Russia” Anton Titov shows a small part of the collection of shoes, which he brought from trips friends. Among pairs of female and male models African slap from scrap automobile tires — Russian bast sandals. “That’s what I show when people ask me about import substitution on the Russian Shoe market” jokes Titov.

Work for repair shops

Real disposable income of Russian consumers declined throughout 2015: in November 2015, they become more modest 5.4% in annual terms, and for 11 months — by 3.5%, witnessed Rosstat. Began to decline even earlier — in November 2014.

During this time, more than a third of consumers with average income level has reduced spending on shoes and clothes. Consulting company Euromonitor International expected that in 2015 the volume of the footwear market in Russia (excluding sport shoes) will be reduced by 6% to 657,8 bn, compared with 2014. The gap of turnover of 2015 with a very successful 2013 was 7.5%.

Russian women have become more modest even in the choice of colors: color sale Shoe stores “Footwear of Russia” has decreased by half, demand fell for high-heeled shoes, women are usually taken as an additional pair of “exit”. “Wardrobe becomes universal, so that part of [we] move on to functional range of 2000-ies. A woman buys one pair of black, simple and on a medium heel,” says Titov. “Decreased emotional purchases, you need to explain the advantages and technological features of the models, and workshops on repair of shoes loaded”, — says the owner of a Shoe holding company Tervolina Vadim Stepanov. Traffic, which was a Shoe store two years ago, no, he said, and close.

What is “Obuv Rossii”

The group of companies “Footwear of Russia” was founded in 2003. Engaged in retail and wholesale of shoes and clothing. The company operates networks under the brands of Westfalika, “Pedestrian”, Emilia Estra, Rossita and Lisette. Engaged in the production of shoes in factories in Novosibirsk and Berdsk.

At the end of December 2015, the group had 451 shop in 102 cities of Russia.

The owner is the founder and Director of the company Anton Titov (ownership stake — as much as 96.4%).

Financial indicators (data for the first nine months of 2015):

the revenues of 5.6 billion rubles.

net profit to 735 million rubles.

Footwear market in terms of raw materials and finished products depend on imports, according to the National Shoe Union, and more than 80%. So players, even though he worked the entire year on deduction of the prices, completely neutralize the effect of the devaluation of the ruble can’t, says Stepanov. On average, according to an anonymous survey of players of the footwear market, which was held by the consultant in the field of commercial real estate Knight Frank, merchants raised the prices of their goods by 21%.

In the footwear market has not yet been high-profile closures of chain stores, as is happening among the sellers of clothing: for the year of Russia took 11 foreign brands, including American Eagle Outfitters, Diane von Furstenberg and New Look. But the two biggest players — “Tsentrobuv” (network “Tsentrobuv”, Centro) and Adidas together account for 10,5% of the Russian market turnover, is experiencing hard times.

CEO of Adidas Herbert Hainer in March 2015 said that in order to reduce the operating expenses of the company during the year closes 290 points worldwide, more than two-thirds of which around 200 in Russia. By early November, the retailer has closed in Russia 179 stores, opening only 29 new. Three quarter 2015 operating profit of the group in our market decreased by 56% to €55 million, and the sale cleared of currency effects, by 9% year-on-year.

The market leader in terms of revenue, “Tsentrobuv” by October 2015 closed not less than 160 points, according to the map service 2GIS. In courts there are hundreds of lawsuits from contractors, primarily landlords. By mid-December, the company was a defendant in 429 lawsuits, shows the base data “SPARK-Interfax”. The total amount of the claim — 1.2 billion rubles. Revenue “Tsentrobuv” in 2014 amounted to 40 billion rubles In recent years, the number of lawsuits filed against “Tsentrobuv”, according to “SPARK-Interfax” did not exceed a couple of dozen. In 2014, the total amount of the claim amounted to 100,5 million roubles.

Co-owner Sergei Lomakin during the whole year searched for “Tsentrobuv” the investor, including among Shoe retailers, said the top Manager of a large Shoe company, which was offered to share in the “Tsentrobuv”, and the investment banker familiar Lomakina. But it turned out to be problematic because of debts nearly 20 billion rubles, according to the interlocutors. “Because we communicate [c Lomakin], discussed the possibility of my participation in the company, — says Dmitry Kostygin (among other assets co-owner of Shoe retail and online store But because of the situation with its debt-Laden banks do not go halfway on the issue of discounting — the next steps we do”. The company does not comment on the current state of Affairs. Sergey Lomakin was unavailable for comment.

Benefit from problems in modern retail Shoe suddenly appeared the markets from the mid-2000s was gradually losing its positions as a sales channel. Although the main places of buying shoes remain specialized shops and shopping centres, consumer survey showed that just over three months to the end of the third quarter of 2015 — the proportion of Russians who decided to switch to the purchase shoes on the open market, rose by 3.2 percentage points to 14.7%.

The return of the interest from consumers was due to the unstable economic situation, convinced the Director to work with clients of Synovate Comcon Irina Vanenkova.

Installment against the market

To lure consumers to the stores of shoes before it was hard due to the nature of the product and low compared to European or American levels of consumption buyers are at these points on average twice a year.

28% of revenue bring the group of “Obuv Rossii” sales “nobunny” goods — outerwear (Snow Guard), household textiles and utensils (Westfalika Home), cosmetics (Westfalika Medical), as well as handbags and belts. In 2015, the company had to sell such goods is not less than

2.5 billion rubles In the development of this kind of “Obuv Rossii” takes the example of the Western fastfast-retailers — Zara and H&M, Titov admits

According to the world footwear Congress in 2014, all Russians, on average, bought a 2.5–3 pairs in a year. Appetites compatriots is much less than the average European or American, they buy five or six and seven or eight pairs a year, respectively.

In 2007, including to divert customers from the markets in their shops, “Footwear of Russia” started to sell boots and sandals on credit. Bank partners has been difficult, at that time, bankers have learned to work with mobile retail and retail specializing in sales of household appliances and electronics, but didn’t really understand who would buy boots cost of 5 thousand rbl. on credit. Gradually Titov managed to agree with the “Russian standard”, OTP Bank and Bank “home Credit”. And customers “Footwear of Russia” idea to buy a few steam boats on credit like in a year or so shoes were sold for 130 million rubles.

But already in 2008 because of the crisis banks have started to toughen requirements to borrowers and have reduced the volume of loans. In “Footwear of Russia” the demand for the service grew — now, though, customers used it to buy additional pair of shoes, but only one. Titov then decided to lend to their consumers independently and offered to buy goods in installments. And the owner of “Footwear of Russia”, apparently, I was right: in 2009 the market fell by 25-30%, and revenue “Footwear of Russia” — only 18% in rubles.

Titov continued to work with banks, but decided that I needed to support the product, adapted it under the Shoe market. “Bank products honed on a large amount, home appliances — plasma TV sets, refrigerators. Our products are inexpensive, and need a different approach: the buyer is not ready for 5-7 thousand rubles to read long contracts and fill a bunch of documents,” he says. “Those products that we’ve tried to do with the banks, were too complicated,” agrees the Tervolina Vadim Stepanov and one said that his company is considering the installment program.

To work with small checks banks risky and not very profitable, explains Yuri Gribanov, managing partner of Frank Research Group, specializing in the analysis of the competitive environment of the Russian market of financial services. The smaller the loan amount, the higher the share of fixed costs. So, from 20 thousand rubles., issued on credit, 20% will go on costs — the rental stand in the store, the salary of the employee who prepares the credit scoring and other expenses.

Many of the details of the program installment Titov does not disclose, but said that it is funded out of working capital “Footwear of Russia”, and funds for the project of micro-loans the company uses from the net profit.

Reliable buyers

Four years ago “Obuv Rossii” was the only Russian footwear retailer, which offered loans and installments. Other market players doubted that with the growth of popularity of credit cards this service does need. In addition, they believed that Titov service is popular primarily because the stores in its network was based mainly in the Siberian towns. But now the service is administered many market participants: it is, for example, in Centro (included in the “Tsentrobuv”) and Kari, which is being developed by the founder “Eldorado” Igor Yakovlev. In 2014 the company for these purposes, a registered microfinance institution “brown-Finance”.

The shops in the “Footwear of Russia” in installments now make six out of ten purchases in 2015, the share of goods sold on credit, the turnover of “Footwear of Russia” has grown almost to 60% from 52% in 2014. In 2015, the company expected revenues (includes retail revenue, wholesale and interest income from microloans) 9 billion rubles (in 2014 it amounted to 8.1 billion rubles).

With this volume of credit sales, if “Shoes of Russia” was only POS-lending, according to estimates Frank Research Group, would become a significant player with a market share of almost 2.5%.

But this strategy has some drawbacks. By becoming the Bank, the retailer receives and is similar to banking risks, warns the General Director of “INFOLine-Analysts” Mikhail Burmistrov. “Next year in Russia will be 7 million people with high levels of overdue loans, a potential bankrupt, — he recalls. A part of them, may do buy, knowing full well that is not going to pay them later”.

The level of arrears and defaults among buyers “Footwear of Russia” does not exceed 3%, says Titov. If we compare this figure with the average level of arrears of Russians on the purchase of consumer goods (this includes POS loans and cash loans), buyers “Footwear of Russia” look reliable borrowers.

In December 2015 the average delay in this segment of financial services was 16% at an average amount of 200 thousand rubles, according to the National Bureau of credit histories (NBCH). And on loans issued by microfinance institutions (MFIs), is even higher: an average of about 29% with an average loan amount of 10-20 thousand rubles.

Preparing for the crisis, “Footwear of Russia” has strengthened the scoring program and twice lowered the limits on customers, says Titov. In the summer of 2014, the client could buy in installments of a maximum of goods for the sum to 50 thousand rbl., now a limit on the amount of the installment does not exceed 18 thousand rbl. the Gain of the delay this year against 2014, according to him, amounted to about 20%.

“Arithmetic” for loyalty

Due to sales in installments financial cycle in the “Footwear of Russia” is extended by four months; the Shoe is the consumer gets, and pays its full value only after a few months. But this is compensated by an increase in customer loyalty and support sales in a difficult economic situation. On average, each client program installment payment twice used the service: after buying a pair, bought on credit and following.

On trade in installments Titov has not stopped: by the example of their colleagues from cellular retail group was gradually added stores in its new financial services. In 2012 introduced to customers the possibility of obtaining micro-loans, not tied to buying shoes, then payment of commercial services, repayment of loans in cash at its stores (each of them is a banking agent). Individual loyalty cards supplied with e-wallet functions: first payment, for example, to pay the loan, the buyer can create payment template and the next time only to describe the purpose of contributed funds. Processing of all payments the company makes on their own.

In the spring of 2016 will be added to the money transfer system between stores, it repeats the products offered by most major banks or money transfer system Western Union. This service, explains Anton Titov, will be popular because of the specificity of the regions in which concentrated most of the stores “Footwear of Russia”, and characteristics of their target audience. Among the core customers are women over the age of 30 and 50 many years. Most of them have children, who are likely to study in the nearby major cities — Khabarovsk, when it comes to the far East, or in Tomsk and Novosibirsk in Siberia. These clients have a need to send money to the children, he explains.

While testing demand, “Footwear of Russia” plans to send money for free. Later, the company will impose tariffs of transfers — most likely, they will be below market, says Titov. For example, Western Union transfer Commission amounts to 10 thousand rubles in Russia is 100 rubles.

For such financial services, credit, transactional product “Arithmetic”, the translation of “Footwear of Russia” has changed the device stores, with separate areas. For special racks organized workplaces for employees who do not serve customers on the main products — shoes. In mobile retail, which was guided Anton Titov, the introduction of financial services began with the provision of the possibility to pay services of cellular communication and other services added to the portfolio companies gradually: the audience was ready for them, says Executive Vice-President of “Euroset” Victor Lukanin.

Now for mobile retail payments is practically standard, says Director of financial services “Liaison” Daniel Podkolodny: in the chain stores payments do tens of thousands of customers per day (“Messenger” at the time the article ran 2870 shops). In cases when the network stopped accepting payments “Beeline” and “MegaFon”, the decline in traffic it got to 10% — more than 100 thousand people per day, after the restoration of reception of payments was restored and the flow of visitors.

Although retailers, expanding the list of financial services in their stores, take the initiative in banks in the eyes of consumers it’s still only an extra service to shopping. Almost half of Russians use financial services in banks and use them, for example, in cellular while only 15% of Russians, the research showed, Watcom Shop Mechanics, which in 2015 conducted a survey among 2,500 people and 17 focus groups.

That attracting clients through financial services work in a Shoe or clothing retail, Lukanin doubts: “People come for completely different goods and services. Agree, buy the smartphone in the grocery store, too, would be atypical transaction”.

Titov also believes that to teach clients to new services and build personal relationships with them, perhaps. If it succeeds, payments will generate more and more traffic. Seriously to expand its portfolio of financial services “Footwear of Russia”, according to Titov, no plans, but this year hopes to gain a foothold in the market as a financial operator.

In January of 2015 belongs to the group of “Obuv Rossii” non-Bank credit organization (NCO) “Payment standard” was licensed by the Central Bank of Russia for banking operations with funds in rubles and foreign currency. In the middle of the year the company started accepting payments and has developed its own processing. In March the group will launch a MasterCard debit card with the same brand of “Arithmetic”.

For this card, most likely, will be a full-fledged means of payment, says the Chairman of the “Payment standard” Roman Ageev: it will be possible to dispose of the balance on the card, to get a loan in “Footwear of Russia” or to pay for any services. The group expects that in the future will join the system and other retailers. For example, according to Ageeva, there is already an agreement about testing services with the Siberian group “New trading systems” (chain of stores “Supermarket, the Supermarket of successful purchases”, “Leader savings”).

However, with “Arithmetic” unlike loans Titov won’t be a pioneer on the market. A full-fledged banking products from other major networks already have, such as multi-function card “Corn” in “Euroset” and cobranded credit card the “Auchan”.

Rates on all financial products “Footwear of Russia” below normal for the market to base the installments for five months is 1% per month in microloans from 30 to 140% annual. Average market rates on POS-loans in the amount of 30 thousand rubles to be 37-39%, to borrow money to the salary in MFO much more expensive: the average rate on loans of up to one year are highly dependent on the term of the loan, fork ranges from 77% for a period of more than 12 months up to 660% when the loan period to one month, according to statistics of the Frank Research Group. Titov explains the relatively low rates that the company provides installment and microloans only to its loyal customers who have positive credit history. In this installment and microloans comprise a significant portion of its revenue and net profit of the company. As for new services, such as payments at the checkout, “Footwear of Russia” does not aspire to earn them separately. For a group that, according to him, method to enhance your retail business and to attract additional stores to the customers — both existing and potential.

“Obuv Rossii” increased production capacity doubled to 1 million pairs

Photo: Andrey Rudakov for

The complexity of the production

At first glance it may seem that “Footwear of Russia” is moving further away from the image of a classic seller’s shoes. But Titov insists, all the extras needed for the development and growth of our core business, the production and sale of shoes.

Before the crisis a third of the range footwear “Footwear of Russia” was produced at Russian enterprises (35%), but at its own facilities, the group produced only 10-12%. In 2015 the share of Russian products remained unchanged, but its own production had risen to 18-20%, says Titov.

About 40% of shoes on the Russian market is smuggled or counterfeit

Source: evaluation of the National footwear Union

85% is the share of imported footwear in the Russian market (legal delivery)

Source: calculations by international trade Center of Moscow on the basis of the statistics of the FCS

Chapter “Footwear of Russia” continues to invest in expanding its production facilities of the group. At the end of 2015 she bought Berd factory S-Tep. This transaction will allow to increase the production capacity doubled to 1 million pairs.

Such production of the family business were Wonderful in the early 2000s. Network Westfalika Anton Titov then developed in parallel with the same franchise stores and an industrial complex in Novosibirsk, the owner of which was his father Michael. Mikhail Titov before moving into politics (in 2003 the Novosibirsk regional Committee of the Communist party has nominated Titova-senior candidate in governors of the Novosibirsk region) relied on a full production cycle at the factory Westfalika. She produced insole and midsole, engaged in fur production and many others. After losing in the elections, Titov Sr. fully retired in the Shoe business.

At the end of 2005, the factory passed to Titov, Jr. But by that time the group has already begun to curtail their own production. The main reason is the lack of raw materials. In Russia there is no fine-fleeced sheepskin for padding, leather for elegant shoes, glue, thread and more, without which the production of quality Shoe making. “We had participated in Australian fur auctions, but the logistics are very difficult and expensive, and to bring the container of skins from Melbourne to Nakhodka worth a penny, and logistics arm to Novosibirsk directly increases the shipping cost by 3-4 times,” explains Titov.

Technically produce most of the footwear in Russia is possible, but to avoid dependence on imports is impossible, says Director General of the National footwear Union Natalia Demidova. “It’s not just on the machine to stitch. What kind of substitution may be discussed if three-quarters of accessories, from leather blanks to a bottom part, imported?” — she shrugs.

To refuse exchange purchases not work, Titov agrees, but to bring to 50% the proportion of own production in Russia without stimulating and restrictive measures is possible.

“Before the crisis, of course, to place orders in China and other countries was interesting,” says Titov. But now helped by the devaluation in currency equivalent the salary for Shoe factories in Russia now, in some specialties are lower than for Asian. The result is to produce a pair of shoes in Russia is 15% cheaper than ordering abroad. Depending on the model in the cost of a pair of wages can take up to 15%.

Now I’m sure Titov: today the economic situation in the country will contribute to the development of production. From contract manufacturing “Footwear of Russia” until you refuse. But this year half of the range for its stores will release a domestic factory, and the third private enterprise group, promises Titov. The company cooperates with many Russian Shoe factories, in particular from Rostov-on-don and Moscow region.

With the participation of Ksenia Samakino